Conservationists in Uganda are fighting a last-ditch battle to stop the destruction of a forest reserve by a sugar corporation friendly with the government.

The Mabira Forest Reserve, on the north shore of Lake Victoria, is home to 300 bird species as well as rare primates, and plays a vital role in the country's eco-system, storing carbon and regulating rainfall. The Mehta sugar corporation wants the reserve carved up so they can expand sugar cane plantations for biofuel production.

Yoweri Museveni, the Ugandan President, is attempting to push through legislation that would strip the forest of its protected status. This would flout a deal signed with the World Bank in 2001 under which the government received £180m to construct a hydroelectric dam on the Nile in return for guaranteeing the forest's protection.

Mr Museveni said last week that handing the forest over for cane cultivation would create jobs and enable the sugar industry to compete in the region. He told a local newspaper that his government would not "be deterred by people who don't see where the future of Africa lies".

However, opposition MPs led by Beatrice Anywar have pointed out that the plan makes no economic sense. Sugar yields in Uganda are among the lowest in Africa, while the destruction will hurt the tourism industry, which is among the country's biggest foreign currency earners, and destroy the best source of food and income for the people of the Buganda Kingdom, which surrounds the reserve.

"Mabira is a biodiversity heaven and conserving it is a much better option than growing sugar cane," said Achilles Byaruhanga, executive director of Nature Uganda. "If a quarter of Mabira is chopped down, the effect on the forest will be far reaching, reducing the range of species, causing encroachment, erosion and siltation. There will be less water in our rivers, less rain, less carbon stored and fewer tourists."

In a report submitted last year to the environment ministry by the Mehta group, it was claimed that the area it wants is heavily degraded and of little environmental value. This was disputed by the National Forest Authority but the government responded by sacking the entire board.

The 75,000-acre Mabira forms the eastern part of the Guinea Congo Forest in central Africa. The RSPB's Africa officer, Dr Chris Magin, said: "Slicing up Mabira would be an environmental disaster and makes no economic sense at all."

The forest is only 20 miles from the capital, Kampala, and is home to a new £500,000 eco-lodge. It could become one of the country's main tourist sites.

The plans have faced enormous public opposition in Uganda, with at least three people killed in April after police broke up a demonstration against the destruction of the forest. The Mehta family, among the richest in the country, have close ties to the Museveni government and were among many Ugandan Asians who were tempted back to the country after the fall of Idi Amin. The Mabira plans have stirred up racial tensions, with protesters attacking a Hindu temple in Kampala.

Forests covered 40 per cent of Uganda in the 1970s. Recent studies indicate that has been reduced to 20 per cent and in the past 15 years rates of deforestation have accelerated above 2.2 per cent.

The conversion of an increasing proportion of the world's food crops into bio-fuel is pushing up agricultural commodity prices and spurring new sugar cane plantations throughout Africa. Andrew Mitchell, founder of the Global Canopy Programme, an alliance of rainforest scientists and NGOs, said the Uganda give-away could be part of a worrying new trend. "Ripping up rainforests for biofuels sets a dangerous precedent that will release far more carbon into the atmosphere than it saves. Uganda faces difficult choices but it is in danger of leading its people down a blind alley."

Economists and Environmentalists are concerned the consequences of a headlong rush into so-called "green fuels" could be to increase greenhouse gases and push up food prices, effectively starving the world's poor.

A report by Care International warned the deforestation risked starting drought and flood cycles and a reduction in the health and volume of Lake Victoria.

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